Millennials Are Feeling More Optimistic Than Ever About Their Investments

Cynics might chalk it up to the optimism of youth: A new study
from Scottrade has found that investors under age 45
are more optimistic about their investments than older investors
are, and they're also more engaged and informed about their
holdings.

They check their accounts more often and are more likely to say
they will add money to their investment accounts over the next
year.

Among Gen Y, the cohort primarily in their 20s, 85 percent said
they expected their portfolio to finish the year up. Meanwhile, 3
in 4 Gen Xers, who are in their 30s and early 40s, said the same.
Around one-third of investors under age 45 said now is the "best
time to invest and get in on some great deals;" just 13 percent
of baby boomers and 8 percent of seniors said the same.

"Since 2009, we've seen their expectations for their portfolio
increasing … They're feeling confident and empowered," says
Kristin Grupas, assistant director of client education at
Scottrade, of investors under age 45.

Gen Y's optimism extends beyond the investing world, too: A
survey released in September by the Gen Y consultancy Millennial
Branding and career site Beyond.com found that almost 9 in 10 Gen
Yers are optimistic about finding a job, compared to 8 in 10 Gen
Xers and just over 7 in 10 baby boomers. "They have their whole
lives ahead of them … they are saving more, managing their money,
and are savvy investors because they have access to a whole
online network of experts," says Dan Schawbel, managing partner
of Millennial Branding.

Schawbel says the younger generation's engagement in their own
financial management is a result of their hesitancy to trust
financial institutions. "They understand the spending mistakes of
their elders and don't want to make the same ones. They want to
be careful about how they spend money and where it goes," he
says.

Other research shows that younger investors are also more
risk-averse than previous generations were at their age. "When
left alone, the younger set of individuals joining plans will
choose something more conservative," says John Ameriks, head of
Vanguard's investment counseling and research group. "That's
different than the generation entering plans 20 years ago, in the
early 90s, when younger investors were choosing more aggressive
investments," he adds.

Ameriks attributes that choice less to the traumatic experience
of the recession than to the fact that many young investors
simply aren't paying much attention to their investment choices.
As a result, he says, they are heavily influenced by what they
hear in the news. In the 1990s, they heard positive stories of
stock market growth, so bought more stocks; in recent years, they
heard more about stocks losing value, so gravitated toward bonds
and other more conservative investments.

Young people can be both risk-averse and optimistic at the same
time, Ameriks says, because they are focused on the future and
excited about it, but they're also not spending much effort doing
their own research on how to invest, which results in their more
conservative portfolios.

Those unique attributes of 20-somethings means that financial
institutions—and parents—might want to consider reaching out to
them a little differently. Ameriks suggests, "Folks who have more
perspective can say, 'Focusing on what you heard on the evening
news might not be the best way to build a portfolio for
retirement.'… Help them focus on the long-term nature of the
choices they're making. It's not about what's going to happen in
the next one, three, or five years; it's about 10, 20, and 50
years for people."

Since people tend to select investments and leave those
selections in place for years—Ameriks refers to this tendency as
401(k) inertia—he says another useful option for people is to
select lifecycle or target-date funds, which automatically shift
into more aggressive investments as retirement approaches.

The Scottrade survey also found that Gen Y and Gen X optimism has
grown steadily over the past few years: In 2009 and 2010, fewer
than half of Gen Y and X investors said they expected their
investments to gain value for the year. But in 2011 and 2012, the
majority said they thought their investments would end the year
up. They also started checking their accounts more frequently
during that time period, with about one-quarter of Gen Yers
checking their accounts once a day in 2012.

The post-recession economy, it seems, inspired both optimism and
engagement among younger investors.